The VA Loan Funding Fee: What Zero Down Actually Costs

The headline on a VA loan is zero down. The part that gets skimmed is the funding fee, which is the price of the guarantee and the number most calculators bury three lines below the payment.

What zero down actually costs

The funding fee is a percentage of the loan amount, and it moves on two things: whether this is your first VA loan, and how much you put down. First use with less than 5 percent down is 2.15 percent. Put 5 percent down and it drops to 1.5 percent. Put 10 percent down and it falls to 1.25 percent. Every subsequent use with under 5 percent down is 3.3 percent.

On a $350,000 purchase at first use with nothing down, that is $7,525. Almost nobody writes a check for it, so the loan becomes $357,525.

Rolling it in is not free

Financing $7,525 at 6.5 percent over 30 years adds about $47.56 a month. Across the full term that is roughly $17,120 paid on a $7,525 fee, so around $9,600 of it is interest. Not a reason to avoid the loan, but a reason to price a partial down payment: 5 percent down cuts the rate to 1.5 percent, and on the resulting $332,500 loan that is $4,988 rather than $7,525.

The saving that does not show up in the fee

VA loans carry no monthly mortgage insurance. A conventional loan with a small down payment does, and private mortgage insurance is commonly quoted between 0.3 and 1.5 percent of the balance a year depending on credit score and down payment. At 0.6 percent on a $332,500 balance that is $1,995 a year, or $166 a month, running until you reach 20 percent equity.

Set against a one-off $7,525, about 45 months of that premium costs the same. That is the fair matchup, since 5 percent down is roughly the cheapest conventional entry point while VA asks for nothing at all. Most people hold a mortgage far longer than 45 months, and that trade, rather than the rate, is usually what settles the decision. The underlying arithmetic is the same as any other loan, so our walkthrough of how a mortgage payment is calculated applies unchanged.

Using the VA mortgage calculator

Enter the purchase price, the down payment (zero is fine), the rate and the term. Then find the two fields people skip. The first is the funding fee selector: first use or subsequent use, and whether an exemption applies. The second is whether the fee is financed or paid at closing, since that changes the loan amount the payment is built from.

Add property taxes and homeowners insurance if the tool has fields for them. There is no PMI line on a VA loan, but escrow still exists, and on a $350,000 house it can add several hundred dollars a month. A payment quoted as principal and interest only is not the number that leaves your account.

Who is exempt from the fee

Veterans receiving VA compensation for a service-connected disability, those who would be entitled to it but for retirement pay, Purple Heart recipients serving on active duty, and certain surviving spouses. Exempt means zero, not reduced, which changes the arithmetic completely. The calculator cannot know your status, so set that toggle yourself.

Common questions

Is there a VA loan limit? Not for borrowers with full entitlement, the position since 2020. If you already have a VA loan outstanding, or defaulted on one previously, entitlement is partial and county limits come back into play. Confirm that with the lender before you shop, because it sets the maximum you can borrow with nothing down, and that ceiling is the same exercise as deciding what you can actually afford.

Do I pay the fee again when I refinance? Yes, but far less on a streamline. An Interest Rate Reduction Refinance Loan is charged at 0.5 percent, so $1,750 on a $350,000 balance, which a meaningful rate drop repays quickly. A cash-out refinance is charged at the standard first or subsequent use rates.

Can the seller pay my closing costs? Seller concessions are capped at 4 percent of the loan amount, and they can cover the funding fee itself. On a $350,000 loan that is up to $14,000. Whether a seller agrees is a negotiation, not a rule.

VA or FHA if I qualify for both? VA usually wins. FHA charges an upfront premium of 1.75 percent plus an annual premium that, on most low down payment loans, lasts the life of the loan. The VA fee is one payment with nothing monthly behind it.